Spotify subscriber growth slows in Q3

Despite its struggling share price, Spotify issued solid Q3 financial results that showed subscribers up 40% year-on-year to 87m. That growth of premium users was similar to Q2 on a yearly basis, but the extra 4m subscribers over the three months was half of what was achieved in the prior quarter.

In Q4, Spotify is forecasting up to 96m premium subscribers and consistent revenue growth.

In the streaming giant’s Q3 results, year-on-year revenues increased by 31% to hit €1.35 billion. It was up 6% on the previous quarter. Currency fluctuations barely affected the result, which would have been 33% if exchange rates were factored in.

In its financial statement, Spotify said: “Growth continues to be healthy across our Family and Student plans, and the strong retention characteristics of this base continue to drive churn lower.”

Gross profits were €342m, while the operating loss narrowed to just €6m - a 92% year-on-year reduction. The company also made its first ever net profit of €43m, although largely because of a one-off tax benefit related to its stake in Tencent. Average revenue per user was down 6% year-on-year to $4.73, though the decline has slowed.

Spotify shares were down 5% as CFO Barry McCarthy warned that operating margins could decline as it increases R&D and content spend.

“The process of product innovation is slower than we anticipated,” he said.

Despite the slowing increase of subscriber numbers, during the earnings call CEO Daniel Ek noted Spotify’s “continuing strong growth”. Ek also made his customary remarks about his vision for Spotify For Artists, which now has 250,000 regular users.

Ek described the platform that provides tools for self-releasing artists as a “significant opportunity for growth”.

International expansion is also key to Spotify’s growth, though its attempted launch in India has been slower than anticipated.

“India is a very fragmented marketplace,” said Ek. “[But] there is nothing we see that prevents us launching in India.”

Asked about taking a potential stake in Universal Music Group, Ek neither confirmed or denied that Spotify might be interested in buying into the major, a stake of which has been put up for sale by parent company Vivendi.

“I can’t make any comment on any deal negotiations at this point,” said Ek.

Spotify’s total monthly active users reached 191m in Q3, up 28% year-on-year. Growth in Latin America and ‘Rest of the World’ outpaced established markets. Europe now accounts for 36% of users, North America - where Spotify is battling Apple Music - accounts for 31% and Latin America has 22% of MAUs.

The company noted recent partnerships with Samsung, DAZN in Japan and Sky in the UK and Ireland, where consumers can add Spotify directly to their bill.

“When you look at the landscape, we are an independent player,” said Ek. “One of our strategies is to partner with as many players as we can.”

In the US, Spotify will offer Google Home Mini speakers to Family plan master account holders during the holiday season.

“We are excited to be adding to our momentum with speakers and voice,” said Ek. “There’s a lot of consumers out there that have devices. Spotify’s goal is to be a top-notch user experience on all devices.”

McCarthy said programmatic advertising for brands was seeing particularly strong growth in the UK.

“The market is moving aggressively towards programmatic solutions,” he said. “The market is heading there and we are driving there as fast as we can.”